Feds Raise the Bar On Financial Management Systems

Unlike the world-threatening confrontations captured on the silver screen in films like the Japanese-made "Godzilla vs. the Smog Monster," much of what passes on the computer monitor in the struggle to fit information technology to business processes is fine-tuning and tweaking.

Switch the view from the enterprise to the public sector, and the scene becomes even more subdued, especially in areas such as financial management systems. Not only does profitability fade away, but interoperability, scalability and functionality become the key technical and end-user factors in deciding on the systems to procure and deploy.

Add the different approach the federal government takes to accounting procedures, and you find yourself with just a handful of vendors willing to stay in the game. For example, unique to the government is a set of budgetary accounts in addition to the standard categories, such as accounts payable. In the former case, governments actually post to a budgetary general ledger in certain transactions.

Yet another accounting difference is the tracking of funds control, or following rules for how the receipt of cash is treated. Agencies are not allowed to augment their appropriations with such receivables, but they must submit them to a general fund, such as the Treasury Department.

In part, this explains the rationale behind the Joint Financial Management Improvement Program, or JFMIP, a joint cooperative of the General Accounting Office, the Office of Management and Budget, the Office of Personnel Management and the Treasury Department. The program dates back to 1948. Two years later, it got statutory authorization in the Budget and Accounting Procedures Act of 1950.

In what started a new era for federal agencies in their quest for financial management systems, on Oct. 1, 1999, the federal government required that new financial management software purchases meet JFMIP qualifications. The JFMIP created the Program Management Office (PMO) and tasked it with developing tools to improve financial systems across government. The three main functions of the PMO are to develop requirements, test and certify financial systems and maintain a so-called Knowledgebase.

A Knowledgebase is an archive for agencies and vendors of financial system requirements, business practices and certified vendor product features. The Knowledgebase is intended to advance discussion on the core financial system, software and requirements.

In developing requirements, the Program Management Office sets up, maintains and publishes a list of JFMIP financial system requirements. These are the basis for software testing and certification. In testing and certifying, the PMO develops and maintains test data, administers the test and certifies vendor products meeting JFMIP requirements.

Through Dec. 3, 1999, according to PMO documents, only five companies had so-called core accounting systems that passed the JFMIP qualification test. The requirements include core financial system management, general ledger management, funds management, payment management, receipt management, cost management, reporting and integration with program and administrative systems.

According to Stephen Balsam, PMO senior associate, testing for JFMIP qualification is an ongoing process, with tests scheduled for December and January. Additional products and companies are likely to be announced no later than February, Balsam said.

The JFMIP tests are designed to provide a benchmark, or what amounts to minimum requirements to meet the financial needs of any given federal agency. There also is a set of value-added requirements that are not tested. These are requirements the software products may meet, but no standards exist to test for compliance.

For example, budget preparation subsystems fall into this value-added requirements category. There are no standards in the federal government that cover budget preparation. Thus, it tends to be agency-unique even though each agency has budget preparation as a financial task.

The new JFMIP testing process is a far cry from the recent past, where agencies often had little, if any, clue about what was tested or even what the requirements were. For the most part, each agency was left to test financial software and had to develop its own procedures starting from scratch.

Further, according to Balsam, the old test only covered about 25 percent to 30 percent of the requirements, and agencies never knew the outcome. This cost them and vendors heavily in the way of time, money and resources.

The value to the five vendors of achieving certification is that government agencies can buy only from the JFMIP list. Core financial systems used by federal agencies must comply with specific guidance, such as OMB Circular A-127, which requires agencies to use a single, integrated financial management system.

"Our tests cover 91 percent of the mandatory requirements, either partially or fully. That amounts to 166 test steps," said Balsam. "However, qualified vendors must meet and must certify they have met all mandatory requirements, whether fully tested or not."

For those agencies that want to understand the testing procedures, the PMO prepared a requirements traceability matrix on its Web site (memphis.lmi.org/ext/cfo_fms_r.nsf/htmlmedia/reference_materials_by_categor.html), a tool for explaining what partial testing means.

There are two new wrinkles worth noting for companies seeking certification. The first is a process to maintain certification for vendors who introduce new versions of their products. The versions will be analyzed and a determination made of what tests will be required. One example is the recently updated Momentum software from American Management Systems, for which partial tests were under way.

The other wrinkle is a policy being drafted for new government financial requirements.

As these come out, new tests may be required for vendors to maintain their certification. As an example, Balsam cited the so-called FACTS II requirement from the Treasury Department, one that covers year-end reporting.

Zipora Brown

Once the Program Management Office certifies products, the marketing begins. That occurs simply because PMO does not judge which product is better. So with certification in hand, companies must approach each agency that is in the market for financial systems.

And here differences in approach and strategy emerge. Two of the more clear cases are Oracle and AMS.

Briefly, Oracle offers a complete suite of products covering the mandatory requirements, while AMS takes a so-called best-of-breed approach, mixing and matching specific modules it considers best in their classes from different vendors.

AMS bills itself as a world-class international business and information technology consulting firm, and one of the 20 largest consulting firms worldwide. Started in 1970, it has more than 8,000 employees, more than $1 billion in annual revenue and 57 offices worldwide. It has been in the federal market for more than 15 years and has placed its financial software in more than 60 agencies.

According to Zipora Brown, vice president of AMS Federal Practice Group, one of the key trends occurring in the federal space, and actually driving the need for change in financial management solutions, is the move from centralized to decentralized operations.

"This move raises issues that are new to most federal agencies, issues that cover things such as mobile agencies, agencies that do not always have offices, agency staff operating from home and staff operating from the road," Brown said.

Because financial software now is available to agencies that meet a minimum set of requirements, another trend is the increasing responsibility that will fall on agencies to look carefully at their business requirements and their lines of business. Enter the best-of-breed model from AMS.

"Vendors have strengths and weaknesses. AMS is best at [financial management solutions]," Brown said. "We intend to offer the best-of-breed solution that provides horizontal breadth with the greatest vertical breadth in subject matter, such as inventory, travel and business functions."

Brown's main arguments against the complete suite of applications to cover financial management are that it often requires an organization to change the way it operates, forcing a technology-driven solution rather than a business solution, and that, in some cases, the strength of a particular application varies in different business areas.

In the worst-case scenario, such a suite could require drastic changes in the business model of the company.

For Brown, the solution includes open systems, World Wide Web access and placing responsibility on the vendors and integrators to make the modules work.

"We look at our fit from a financial management solution, first and foremost. We then look at other vendors who might have solutions that augment ours," she said.

For example, AMS signed an agreement with Ariba Inc. of Sunnyvale, Calif., and a similar agreement with Siebel Systems Inc. of San Mateo Calif. "These two are leaders in their space. We believe strongly that the best-of-breed solution is the only way to go," Brown said.

While seemingly on the other side of the fence from the best-of-breed model, companies such as Oracle could, in principle, offer a suite that is, in fact, best of breed. Whether that is true or not seems to reside in the eyes of the federal agency buying the financial package.

Oracle was first certified to offer software solutions to the federal government in 1996 under the old system. Its financial suite for the federal market, called Oracle U.S. Federal Financials, includes Oracle U.S. Federal General Ledger, Oracle U.S. Federal Receivables, Oracle U.S. Federal Payables and Oracle U.S. Federal Purchasing. That suite integrates with other Oracle financial modules and applications suites for human resources, payroll and supply chain.

The company tags itself as the world's leading supplier of software for information management and the world's second largest independent software company. It was among the first companies to have its products certified by JFMIP and PMO.

For Keith Conquest, Oracle Applications technical manager, the key question for agencies to ask as part of their purchase decisions is whether the firms they will deal with are product or consulting companies.

"We are a strictly products company, which is not true of the others on the [JFMIP] list. We will move our product forward independently and include new technology," Conquest said. "That is what you get with a products company. We are hoping to change that paradigm in the federal space."

As he described the consulting model, agencies generally buy a product and live with it for several years. As changes are required by OMB Circular, for example, the typical agency will contact its vendor and have the solution modified for the new requirements. This pushes many consulting companies to deliver in a time frame that stresses them.

"Oracle will make the changes within the regular product development schedule and include [them] in the product," Conquest said. "In this way, you change the paradigm and greatly reduce cost of ownership by getting the agency to buy into the new product. We believe this is a viable market space, and Oracle is committed to it."

The software price initially may be a little higher, Conquest said, but the total life-cycle cost will be reduced since the agencies will not be paying for new enhancements.

The final vote for the product vs. best-of-breed model will become clear as individual agencies vote with their procurements over the coming years.